Tag Archive for 'construction spending'

Wells Fargo Reports: Construction Spending Improves Marginally in April

Wells_Fargo_Securities_logoConstruction spending rose 0.2 percent in April, which was lower than the consensus estimate. Private residential and public spending rose, while private nonresidential fell for the fourth straight month.

Residential Outlays Continue to Improve

· Total construction spending rose 0.2 percent in April to a $953.5 billion annual pace with upward revisions to previous months’ data. Private residential construction spending rose just 0.1 percent on the month, with home improvements holding down the headline. However, private nonresidential outlays fell 0.1 percent on the month. The decline was concentrated in communication, power and manufacturing.

Public Spending Expected to Slow in Coming Months

· Public construction spending rose 0.8 percent in April, but could begin to falter in the coming months. The largest component of public outlays, ‘highway & street,’ is up 4.9 percent on a year-ago basis, but the expected slower pace of reimbursements this summer to states from the federal Highway Trust Fund (receives revenue from a federal fuel tax and distributes to states for infrastructure projects) could weigh down total public outlays.

Construction Spending_06022014 Construction Spending_06022014

ABC Reports: CBI Remains Virtually Unchanged In Third Quarter


As the economy gradually recovers, nonresidential construction spending remains unchanged—a good sign the downturn in the industry has stopped, according to the Construction Backlog Indicator (CBI) produced by Associated Builders and Contractors (ABC). CBI also remained nearly unchanged between the second and third quarters of 2013.

“The most recent CBI reading suggests much of the growth next year is likely to occur after the first quarter of 2014, and only if a successful resolution to lingering federal budgetary issues emboldens decision-makers,” said ABC Chief Economist Anirban Basu. “Even with successful negotiations in Washington, D.C., ABC expects publicly financed segments to continue to be hamstrung by reluctant state and local government budget officials.”

Despite the fact the nation is in its fifth year of recovery, nonresidential construction spending remains roughly 20 percent below the cyclical and all-time peak achieved in October 2008.  While the most recent CBI is 2.8 percent higher compared to a year ago, it suggests the long-awaited rapid acceleration in nonresidential construction spending will not occur in the very near term.

“For the past year, businesses and consumers grappled with higher tax rates, rising interest rates, a federal shutdown, and the uncertainties associated with health care reform, sequestration and debt default.  In October, the International Monetary Fund downgraded the 2013 U.S. growth forecast from 1.7 percent to 1.6 percent,” Basu said “As if headwinds emerging from the federal government were not enough, the uncertain resolution of Detroit’s bankruptcy has induced more cautious behavior among certain large and similarly situated American cities, which continues to impact the outlook for U.S. infrastructure investment, “Basu said.

However, there is optimism in today’s CBI release. “Even slow growth leads to construction opportunities,” Basu said. “Ongoing recovery steadily produces lower vacancy rates, higher rents and more comfortable lenders. However, growth also results in higher interest rates and ABC believes this factor will begin to serve as a more meaningful speed governor in late 2014 or in 2015.”

CBI Map of Regions and Backlog MonthsThird Quarter 2012 v. Third Quarter 2013


Regional Highlights

  • On a quarterly basis, backlog declined in three out of four regions, with the largest quarterly decline occurring in the Northeast.
  • The South was the only region to experience expanding backlog during the third quarter, with the lengthiest backlog of any region at 9.8 months. States such as Louisiana, Georgia and Florida are experiencing significant improvement in construction industry conditions.
  • Backlog has expanded in the Northeast and South over the past year, but declined in both the West and Middle States. This is likely due to softening industrial activity in certain Middle States over the past year and softening infrastructure investment in the West.


“Construction momentum has become increasingly divergent within regions,” Basu said. “For example, the Middle States continue to be associated with the shortest average backlog at 6.15 months; however, construction activity has been robust in North Dakota, Iowa, Wisconsin and Minnesota.

“The South and the West are likely to experience the most expansion in backlog going forward due to economic momentum in California, Washington, Idaho, Arizona and Nevada, more stable housing markets in Georgia and Florida and continued expansion of energy production in Oklahoma, Louisiana and Texas,” Basu said.

See charts and graphs

Industry Highlights

  • Backlog expanded only for the commercial/institutional segment in the third quarter, which was driven by a combination of increasing work from the nation’s health care system and from rising consumer outlays.
  • Infrastructure saw backlog decline for a third consecutive quarter, primarily due to still-wounded state and local government budgets along with erratic decision making in Washington, D.C.
  • Average backlog declined in the heavy industrial category, in part due to a weak global economy that has frustrated exporters. Manufacturing capacity utilization stands at just 76.1 percent, which is too low to permit aggressive industrial facility buildout.


“CBI continues to reflect the U.S. recovery’s dependence on consumer credit and spending,” Basu said. “This translates into construction projects in several categories, including shopping centers, lodging, distribution and fulfillment centers.

“On the other hand, states and local governments continue to remain defensive in terms of capital budgeting, in part because of uncertainty regarding the level of future support from the federal government and pressures related to underfunded pensions and retiree health care costs,” Basu said.

See charts and graphs

Highlights by Company Size

  • Average backlog declined for the largest firms (annual revenues in excess of $100 million), which is consistent with a lack of momentum in large-scale infrastructure projects.
  • The smallest firms have experienced backlog expansion for the past two quarters due to spending growth in nonresidential construction and the recovery’s expansion to encompass a greater share of firms. Backlog now stands at 7.31 months, the highest level since the second quarter of 2011 when the stimulus package was creating opportunities for many subcontractors.
  • Over the past year, backlog has expanded for all firm size categories with the exception of the $30-$50 million category, a group that often comes into direct competition with larger firms and is also associated with more fragile banking and insurance relationships than their larger counterparts.

“Today’s nonresidential construction industry competition favors large contractors due to their resources to comply with a growing number of regulations, a capacity to enter green construction segments, a level of flexibility that permits entry into rapidly expanding geographic markets, and an ability to attract both youthful and veteran construction industry talent in an environment characterized by emerging skills shortages,” Basu said. “These firms not only have the capacity to take on the largest projects, but also have the ability to embrace the most productive (and expensive) technologies. However, there does not seem to be enough large projects to permit significant average backlog expansion even in the large firm size category.”

See charts and graphs


ABC Reports: Construction Spending Falls 0.6 Percent In June

CEU2“A majority of nonresidential segments experienced declining activity in June, which often represents a period of accelerating, not decelerating, activity.” —ABC Chief Economist Anirban Basu.

Construction Spending-August2013Summary

Indicating that the nation’s builders continue to struggle in the current economic environment, construction spending—which includes both nonresidential and residential sectors—was down 0.6 percent in June, according to the August 1 Construction Spending report by the U.S. Census Bureau. However, spending was 3.3 percent higher than one year ago.

Nonresidential construction spending fell 1 percent in June and declined 4 percent during the past 12 months, with spending totaling $545.8 billion on a seasonally adjusted, annualized basis.

Spending was down in both the private and public sectors in June. Private nonresidential construction slipped 0.9 percent, while public nonresidential construction spending decreased 1.1 percent for the month. On a year-over-year basis, private nonresidential construction is up 1.4 percent. Public nonresidential construction spending has dipped 9.3 percent during the past year, with the rate of decline accelerating in recent months.

Ten of 16 construction sectors posted spending losses for the month, with the largest decreases in conservation and development, down 9.4 percent; religious, down 6.8 percent; water supply, down 5.5 percent; sewage and waste disposal, down 5.3 percent; and commercial, down 5.1 percent. On a year-over-year basis, construction spending has softened in 12 subsectors. The largest losses occurred in conservation and development, down 17.2 percent; communication, down 13.8 percent; educational, down 12.6 percent; highway and street, down 12.4 percent; and religious, down 12.2 percent.

Only six of the 16 nonresidential construction sectors posted spending increases in June: power, up 3.6 percent; communication, up 2.5 percent; transportation, up 1.9 percent; health care, up 1 percent; office, up 0.8 percent; and amusement and recreation, up 0.4 percent. Four subsectors have experienced higher spending compared to one year ago, including lodging, up 22.7 percent; water supply, up 6.8 percent; power, up 5.7 percent; and transportation, up 4.3 percent.

Residential construction spending slipped 0.1 percent for the month, but is 17.6 percent higher than the same time last year.


“Nonresidential construction spending momentum remains subdued,” said Associated Builders and Contractors Chief Economist Anirban Basu. “The nation has now entered its fifth year of economic recovery and second quarter gross domestic product estimates released yesterday were better than anticipated.

“Despite that, nonresidential construction and most of its sub-components are associated with stagnant spending or worse,” Basu added. “A majority of nonresidential segments experienced declining activity in June, which often represents a period of accelerating, not decelerating, activity.

“This would not be as problematic were the declines in spending relegated to publicly financed segments,” said Basu. “Given sequestration and constrained state and local government capital budgets, declines in publicly financed construction are not particularly surprising.

“However, the recent bankruptcy of Detroit will likely translate into conservative budgeting during the months ahead as financiers and policymakers adopt an even more cautious stance regarding major capital outlays,” Basu said.

“Construction segments heavily financed by the private sector, including commercial and lodging-related construction, were down for the month, and office-related construction spending was up only slightly,” said Basu. “The implication is that the pace of economic growth, which averaged less than 2 percent on an annualized basis during the first half of 2013, has not been enough to trigger or sustain meaningful private nonresidential construction increases.

“The conventional wisdom is that the second half of the year will be better for the broader economy, which would imply better nonresidential construction performance in 2014,” Basu said. “However, with interest rates now rising, there are reasons for contractors and other stakeholders to remain cautious.”

To view the previous Spending report, click here.

ABC Reports: Nonresidential Construction Spending Increases 0.7 Percent In April

CEU2“The implication is that nonresidential construction spending will continue to recover, but only gradually.” —ABC Chief Economist Anirban Basu.

Construction Spending-June 2013Summary

After a disappointing March, the nation’s nonresidential construction industry bounced back moderately in April. According to the June 3 release by the U.S. Census Bureau, nonresidential construction spending increased 0.7 percent in April, with outlays increasing to a seasonally adjusted annualized rate of $552.45 billion. However, nonresidential construction spending is down 2.1 percent from one year ago.

Privately financed projects primarily drove spending gains in April, with private nonresidential construction spending rising 2.2 percent for the month and 0.6 percent on a year-over-year basis. Public nonresidential construction spending dipped 1.1 percent for the month and is down 5.2 percent compared to April 2012.

Eight of the sixteen nonresidential construction sectors posted increases in spending for the month, including power, up 7.8 percent; sewage and waste disposal, up 7.7 percent; and public safety, up 5.6 percent. Spending in other growth sectors was up less than 1 percent. Five sectors have registered increases in spending on a year-over-year basis, including lodging, up 16.6 percent; transportation, up 11.4 percent; manufacturing, up 2.1 percent; commercial, up 1.9 percent; and office, up 1.6 percent.

In contrast, eight nonresidential construction sectors experienced spending declines for the month, with the largest decreases were in religious, down 11.3 percent; conservation and development, down 5.6 percent; and communications, down 4.6 percent. Sectors recording the largest losses from one year ago include conservation and development, down 11.5 percent; educational, down 10.7 percent; and amusement and recreation, down 10.5 percent.

Residential construction spending slipped 0.2 percent for the month, but is up 18.3 percent from the same time last year. Total construction spending–which includes both nonresidential and residential spending–was up 0.4 percent for the month and is up 4.3 percent from April 2012.


“The dominant theme associated with today’s report on the nation’s nonresidential construction industry continues to be slow and steady,” said Associated Builders and Contractors Chief Economist Anirban Basu. “While weather and other factors can impact monthly performance, the industry continues to be poised for slow spending growth.

“Nonresidential construction tends to lag the performance of the overall economy,” added Basu. “The broader economy continues to expand at a roughly 2 percent pace and is closing in on completing four years of economic recovery. The implication is that nonresidential construction spending will also continue to recover, but only gradually.

“In the larger context, at least four aspects of the broader economy that are expanding more briskly than construction,” Basu stated. “These include energy production, housing, consumer spending on automobiles and financial markets.

“The performance of these economic segments helps explain the increase in spending observed over the past year in categories such as power, commercial, lodging and office,” said Basu. “With consumer spending continuing to rise and the nation continuing to add jobs each month, the expectation is that these and many other private segments will continue to recover over the course of 2013.

“Meanwhile, weak state and local government budgets continue to plague the recovery,” Basu remarked. “Though some state budgets have improved materially in recent years, many states continue to wrestle with long-term deficits in their pension and healthcare funds, which will continue to suppress public construction investment in the near future.”

To view the previous Spending report, click here.

Wells Fargo Reports: Construction Spending Unexpectedly Falls in January

Wells_Fargo_Securities_logoConstruction spending unexpectedly fell 2.1 percent in January with upward revisions to prior months’ data. Residential outlays were flat on the month, while nonresidential and public outlays showed weakness.

Construction outlays fell 2.1 percent in January to a $883.3 billion annualized pace. However, construction spending is notoriously volatile on a monthly basis so looking at the trend is far more instructive. On a year-ago basis, construction spending is now up 7.1 percent. Previous months’ data were upwardly revised, which suggests structures could make an even larger contribution to fourth quarter real GDP. Public spending was down 1.0 percent with across-the-board declines.

Residential Outlays Continue Impressive Gains

Single-family construction rose 3.6 percent, the ninth consecutive increase and multifamily rose 1.7 percent. Solid gains in single-family and multifamily helped offset a decline of 4.3 percent in home improvements. The consistent gains in single-family outlays are not surprising given ongoing improvement in the housing market, including builder sentiment, sales activity and starts and permits. Indeed, much of the upward momentum in residential continues to be due to modestly increasing prices and less competition from foreclosures. We expect residential construction spending to continue to improve in the coming months with the key home buying season seeing a boost in activity. While the residential market is a bright spot, tight lending standards, low inventory and concentrated activity in select markets are putting a lid on more robust activity.

Nonresidential Remains Volatile, but Trend Is Up

Private nonresidential spending fell 5.1 percent with power, manufacturing and lodging largely accountable for the pullback. Commercial, which includes autos, retail, and warehouse, did not rise enough to offset the declines. In fact, commercial is expected to be a bright spot for nonresidential construction spending. Retail construction spending could increase about 6 percent this year as the housing market gains modest momentum and retail sales improve. Improvement in warehouse fundamentals has created a robust pipeline of build-to-suit and speculative projects supporting about a 10 percent increase in 2013. We also expect lodging and manufacturing to show gains.

Looking Ahead

Residential improvement rose at an 11.9 percent annual pace in 2012 and is expected to make further progress in 2013 and 2014. Residential construction contributed 0.4 percentage points to real GDP in the fourth quarter and based on projections should continue to boost headline economic activity. Despite monthly volatility, nonresidential construction spending is on track to make progress over the next two years as well. We expect structures, which also include brokers’ commissions, net purchases of used structures and mining exploration, shafts and wells, to increase around a 2 percent in 2013 and about 6 percent in 2014.

Source: U.S. Department of Commerce and Wells Fargo Securities, LLC